ZAGREB (Reuters) - Croatia’s economy shrank 0.4 percent year-on-year in the first quarter, marking six straight years of recession driven by a policy of austerity and diminishing domestic consumption.
Preliminary data released by the state statistics bureau on Friday showed gross domestic product declined for the 10th consecutive quarter of declines. The contraction was slightly worse the average analyst forecast of a 0.3 percent decline.
The loss was unsurprising “given the lack of investments and continuously subdued domestic consumption,” said Zrinka Zivkovic Matijevic, an analyst at Raiffeisen bank. “State spending mitigated the fall in the first quarter, but that will not be the case in the rest of the year due to fiscal consolidation.”
Croatia, which became the newest European Union state last July, has had no annual growth since 2008 and has lost almost 13 percent of output since then.
The statistics bureau, which does not provide quarter-on-quarter comparisons, will release detailed first-quarter GDP figures on June 10. Deputy Prime Minister Branko Grcic said this would show quarterly output actually grew compared with the last three months of 2013.
“Today’s figures show that the GDP is recovering ... To have full-year growth, we need at least another positive quarter ... growth of 0.2 percent or more in the second quarter,” Grcic told the state news agency Hina.
Croatia’s GDP fell 1.2 percent year-on-year in the last quarter of 2013.
For 2014 as a whole, the government expects zero economic growth. The International Monetary Fund forecasts a decline of close to 1 percent. The median forecast of local analysts in a recent Reuters poll was 0.7 percent. Hypo Bank said it expected a full-year decline of 0.7 percent because fiscal austerity was likely to offset “the positive contribution of net exports and tourism”.
Zivkovic Matijevic said Raiffeisen’s forecast of a 0.8 percent decline “rests upon weak private-sector investments and no signs of recovery in domestic consumption, amid high unemployment and the state’s inability to increase spending due to fiscal constraints.”
Soon after its EU entry, Croatia was placed under the block’s Excessive Deficit Procedure, a tool to enforce fiscal discipline.
Brussels wants Zagreb to reduce the public-sector deficit to below three percent of economic output by the end of 2016 from around 5 percent in 2013. The Social Democrat-led government has already re-jigged the budget twice this year to narrow the shortfall.
Reporting by Igor Ilic; Editing by Zoran Radosavljevic and Larry King